US dollar could ‘get slaughtered,’ Nordea strategist tells treasurers

The coronavirus was front and centre at the 2020 Cash & Treasury Management conference in Copenhagen. Nordea Global Strategist Andreas Steno Larsen had three main takeaways for the audience of corporate treasurers.

When Nordea Global Strategist Andreas Steno Larsen originally prepared his speech for the annual Cash & Treasury Management conference back in late February, the coronavirus was still being taken rather lightly.

That’s certainly not the case today, he told the audience of corporate treasurers at the recent Copenhagen event, which was rescheduled from March to mid-August after the coronavirus hit the Nordics. The pandemic sent global markets into free fall, triggering the biggest economic contraction since at least the 1930s.

Global FX and Fixed Income Strategist Andreas Steno Larsen

Nevertheless, Steno Larsen was optimistic in his message at the conference: “I’m happy to say I find the state of the economy much better than I feared,” he said. Consumption data has rebounded markedly across sectors, with the exception of those industries hardest hit, such as airlines, hotels and entertainment. There are also positive signs that this has been a supply crisis rather than a demand crisis, according to Steno Larsen.

“Supply is manageable as we know supply can pick up again. A demand crisis would be more worrying as we wouldn’t know when demand would pick up again,” he said.

Insights and social(ly distanced) networking

The coronavirus was also top of mind for the audience at the Nordea-sponsored conference, Denmark’s main cash and treasury management networking event. While the majority of participants were present in-person, others followed the conference online via a livestream broadcast. For many, it was the first time back at such a physical gathering since Denmark went into lockdown in early March.

Great efforts were made to ensure safe participation at the event, which was held in the spacious Industriens Hus. This included extra space between all seats, reminders to keep one meter’s distance during the networking breaks, single-portion meals, plentiful hand sanitizer and frequent cleaning of all contact surfaces.

I’m happy to say I find the state of the economy much better than I feared.

Andreas Steno Larsen, Nordea Global Strategist

3 key takeaways for corporate treasurers

Steno Larsen kicked off the event, setting the scene with the macro outlook. He left the corporate treasurers with three main takeaways:

  • Expect the US dollar to “get slaughtered” in 2021.

When the crisis hit, the US Federal Reserve decided to flood the market with dollar liquidity as a way of dealing with the crisis. Theirs was a much more potent response than in the Euro area, Steno Larsen explained.

“When the need for that dollar liquidity abates, then there is a risk of a much weaker dollar against almost every single currency in the world,” he said.

  • “We can’t go any lower” when it comes to interest rates.

The Fed, the only major central bank with any ammunition power when it came to interest rates, did cut rates in response to the crisis. Interestingly, the European Central Bank (ECB) did not. That shows that we can’t go any lower when it comes to interest rates, according to Steno Larsen. The ECB has also started to publish research on its website about the harmful effects of negative rates.

“These could be the famous last words of a strategist: ‘We can’t go any lower.’ But this time I’m finally believing it,” he added.

Instead of cutting rates, central banks have started to buy – the only weapon of choice they have left, according to Steno Larsen. He says to expect a “ketchup effect” (referring to the situation where no tomato sauce comes out of the bottle followed by a sudden gush).

The government stimulus during the Covid-19 crisis has been “out of this world in size,” so expect a big pickup in economic activity, he said, adding, “I’m actually very optimistic.”

  • If Biden wins the US election, think green

If Joe Biden wins the upcoming US election in November (which Steno Larsen puts his money on), we could enter an environment where the US starts buying into the green wave. During the Trump administration, this has been a major difference between the US and Europe, where green-labelled investments have experienced exponential growth.

“I never have a meeting with the investor side without being asked about this anymore,” Steno Larsen said. If the US gets aboard this train with a Biden administration, expect an even bigger push towards ESG investment across the globe and a massive frontrunning of the green agenda, he added.

Banner for Cash & Treasury Management conference 2020

Calmed nerves

Sune Rasborg, treasurer at consulting group Cowi and a Nordea client, was among those physically present at the socially-distanced conference. The event was Rasborg’s first physical conference in the wake of the coronavirus and triggered some nerves.

“In the week before, I had many discussions with myself over whether to attend,” he said, adding that reassurance from the organizers about the precautions taken, including adequate space and hygiene, helped calm his nerves.

“The event felt safe and worked fine. It was also good to do some networking in person after corona, which is why these kinds of conferences are preferable to web meetings,” he said.

Rasborg complimented Steno Larsen’s talk for doing a great job setting the macro scene as well as some of the other corporate presentations that followed.

On the corporate side, the audience heard from Ørsted about its green financing journey; SOS International about building a data-driven treasury; LEGO on its bank evaluation models and DSB on financial risk management. Equinor also presented on its redesigned Treasury that puts new technologies into action.

Nordea’s own Sophia Wikander, Head of Nordea Connect, shared tips for how to navigate the changing payments landscape from offline to online.

Importance of an FX risk policy

In another presentation, two Nordea experts, Henrik Immelborn, Head of Debt Solutions and Loans, and Thomas Christensen, Head of Research and Risk Solutions, shared their experience with the effect Covid-19 has had on key treasury areas, such as liquidity management, funding, capital structure and financial risk management.

For many sectors in Denmark, such as pharmaceuticals, green energy and project-based corporates with full order books, the impact of the crisis on business was limited, Christensen said.

In addition, those companies with systematic hedging programs were able to weather the storm, while some of the corporates hedging in a less structured or opportunistic fashion found themselves in trouble, he said.

He warned of rising currency risks in emerging markets, which have been hit hard by the pandemic, and also echoed Steno Larsen’s point on the US dollar:

“Be worried about the dollar. There are scenarios where it can come down significantly.”

Above all, Christensen emphasized the importance of having a solid FX risk policy in place, an area where Nordea can lend its expertise:

“Have a policy; be reflective about what you’re doing in the risk space and have it agreed-upon with the board,” he said.

Read more about how to effectively manage your FX risk:

5 steps to manage your currency risk

Mid-size companies can do more to manage their currency risk

Why systematic FX hedging can help you sleep at night


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